CEC Entertainment Reports Financial Results For The Second Quarter Of 2012

CEC Entertainment, Inc. (NYSE: CEC) today announced its financial results for its second quarter ended July 1, 2012. Total revenues for the second quarter of 2012 decreased 2.0%, or $3.8 million, to $182.4 million from $186.2 million for the second quarter of 2011. The decrease primarily related to a 2.4% decrease in comparable store sales, slightly offset by additional revenues generated from new stores.

Net income for the second quarter ended July 1, 2012 decreased 37.3%, or $2.4 million, to $4.1 million as compared to $6.5 million for the second quarter of 2011. Diluted earnings per share decreased to $0.23 per share for the second quarter of 2012 from $0.34 per share for the second quarter of 2011. The decrease primarily related to the decrease in net income.

For the first six months of 2012, total revenues decreased 3.0%, or $13.4 million, to $429.2 million as compared to $442.6 million for the first six months of 2011. The decrease in total revenues was primarily related to a 3.4% decrease in comparable store sales, slightly offset by additional revenues generated from new stores.

Net income for the first six months of 2012 decreased 10.4%, or $4.2 million, to $36.4 million as compared to $40.6 million for the first six months of 2011. Despite the decrease in net income, diluted earnings per share remained relatively flat for the first six months of 2012 at $2.05 per share as compared to diluted earnings per share of $2.06 per share for the first six months of 2011. Diluted earnings per share for the first six months of 2012 benefitted approximately $0.16 from our repurchase of 2.7 million shares of our common stock since the beginning of 2011 fiscal year.

On July 31, 2012, the Company’s Board of Directors declared a cash dividend of $0.22 per share. This cash dividend is scheduled to be paid on October 4, 2012 to stockholders of record as of September 6, 2012.

Michael Magusiak, President and Chief Executive Officer, stated that, “We are obviously not pleased with our first half of the year comparable store sales results and the impact on earnings. We believe our greatest opportunity to generate increased guest traffic and comparable store sales is through our new comprehensive marketing and advertising strategy. We refreshed our Chuck E. Cheese character and launched our new kids campaign on July 5 th and are anticipating our mom’s advertising campaign will commence toward the end of this month.”

At this time, we are estimating diluted earnings per share for fiscal 2012 to be in a range of $2.65 to $2.75, which is a decrease from previous guidance of $3.00 to $3.15. This guidance incorporates the following assumptions for fiscal 2012:

average cheddar cheese block prices will remain in the range of $1.50 to $1.70 per pound;

depreciation and amortization expense will decrease approximately 2% from the prior year;

rent expense will increase approximately 2% from the prior year;

advertising expense will increase approximately 2% from the prior year;

annual effective income tax rate of approximately 38.8%;

spend of $88 million for capital expenditures during fiscal year 2012;

open 12-15 new Company-owned stores, including approximately three relocations and one franchise acquisition; and

payment of four quarterly dividends totaling approximately $16 million.

This guidance considers impacting approximately 125 to 135 stores with store expansions, major remodels, and game enhancements.

Second Quarter 2012 Conference Call:

The Company will host a conference call Thursday, August 2, 2012, at 3:30 p.m. Central Time to discuss its second quarter financial results and outlook for fiscal year 2012. A live webcast of the call (listen only) can be accessed through the Company's website, www.chuckecheese.com. Shortly after its conclusion, a replay of the call will be available on the website through Friday, September 21, 2012.

Non-GAAP Financial Measures:

The Company reports and discusses its operating results using financial measures consistent with accounting principles generally accepted in the United States ("GAAP"). From time to time in the course of financial presentations, earnings conference calls or otherwise, the Company may disclose certain non-GAAP financial measures such as Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Free Cash Flow. The non-GAAP financial measures presented in this earnings release should not be viewed as alternatives or substitutes for the Company's reported GAAP results. A reconciliation of the most directly comparable GAAP financial measure to EBITDA and Free Cash Flow is set forth in a table accompanying this release.

About CEC Entertainment, Inc.:

For more than 30 years, CEC Entertainment has served as the nationally recognized leader in family dining and entertainment and the place Where a Kid can be a Kid ®. The Company and its franchisees operate a system of 560 Chuck E. Cheese’s stores located in 48 states and eight foreign countries or territories. Currently, 510 locations in the United States and Canada are owned and operated by the Company. CEC Entertainment, Inc. and its franchises have the common goal of creating lifelong memories for families through fun, food, and play. Each Chuck E. Cheese’s features musical and comic robotic entertainment, games, rides, and play areas, as well as a variety of dining options including pizza, sandwiches, a salad bar, and desserts. Committed to providing a fun, safe environment, Chuck E. Cheese’s helps protect families through industry-leading programs such as Kid Check ®.

Chuck E. Cheese’s aims to promote positive, lifelong memories inside and outside of its stores. In addition to providing a fun entertainment experience for millions of families across the world, Chuck E. Cheese’s has donated more than $7.7 million to schools and non-profit institutions through its fundraising programs. For more information, see the Company's website at www.chuckecheese.com.

Cautionary Statement Regarding Forward-Looking Statements:

Certain statements in this press release, other than historical information, may be considered “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and are subject to various risks, uncertainties and assumptions. Statements that are not historical in nature, and which may be identified by the use of words such as “may,” “should,” “could,” “believe,” “predict,” “potential,” “continue,” “plan,” “intend,” “expect,” “anticipate,” “future,” “project,” “estimate,” and similar expressions (or the negative of such expressions) are forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future events and, therefore, involve a number of assumptions, risks and uncertainties, including the risk factors described in Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2012, filed on February 23, 2012. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ from those anticipated, estimated or expected.

Factors that could cause actual results to differ materially from those contemplated by forward-looking statements include, but are not limited to:

Our ability to successfully implement our business development strategies;

Unanticipated costs and delays in implementing our business development strategies;

Changes in consumer discretionary spending and general economic conditions;

Adverse effects of local conditions, natural disasters and other events;

Fluctuations in our quarterly results of operations due to seasonality;

Disruptions of our information technology systems;

Risks in connection with owning and leasing real estate;

Our ability to adequately protect our trademarks or other proprietary rights; and

Conditions in foreign markets.

The forward-looking statements made in this press release relate only to events as of the date on which the statements are made in this press release. Except as may be required by law, the Company undertakes no obligation to update its forward-looking statements to reflect events and circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

Percentages are expressed as a percent of total revenues (except as otherwise noted).

(1)

Percent amount expressed as a percentage of food and beverage sales.

(2)

Percent amount expressed as a percentage of entertainment and merchandise sales.

(3)

Percentage amount expressed as a percentage of Company store sales.

(Note - Due to rounding, percentages presented in the table above may not sum to total. The percentage amounts for the components of cost of food and beverage and the cost of entertainment and merchandise may not sum to total due to the fact that cost of food and beverage and cost of entertainment and merchandise are expressed as a percentage of related food and beverage sales and entertainment and merchandise sales, as opposed to total Company store sales.)

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

July 1,

January 1,

2012

2012

ASSETS

Current assets:

Cash and cash equivalents

$

17,436

$

18,673

Other current assets

60,720

62,008

Total current assets

78,156

80,681

Property and equipment, net

693,612

683,390

Other noncurrent assets

11,293

8,400

Total assets

$

783,061

$

772,471

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Capital lease obligations, current portion

$

816

$

834

Other current liabilities

83,440

82,854

Total current liabilities

84,256

83,688

Capital lease obligations, less current portion

13,058

10,075

Revolving credit facility borrowings

383,400

389,600

Other noncurrent liabilities

162,576

164,931

Total liabilities

643,290

648,294

Stockholders’ equity

139,771

124,177

Total liabilities and stockholders’ equity

$

783,061

$

772,471

CEC ENTERTAINMENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

Six Months Ended

July 1,

July 3,

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

36,383

$

40,584

Adjustments to reconcile net income to net cash provided by operating activities:

The following table set forth a reconciliation of net income to EBITDA and EBITDA expressed as a percentage of total revenues for the periods shown:

Three Months Ended

Six Months Ended

July 1,

July 3,

July 1,

July 3,

2012

2011

2012

2011

(in thousands, except percentages)

Total revenues

$

182,415

$

186,216

$

429,173

$

442,618

Net income

$

4,079

$

6,502

$

36,383

$

40,584

Add:

Income taxes

2,381

4,183

22,883

25,696

Interest expense

2,083

2,286

4,054

5,040

Depreciation and amortization

19,272

21,064

39,208

41,978

EBITDA

$

27,815

$

34,035

$

102,528

$

113,298

EBITDA as a percent of total revenues

15.2

%

18.3

%

23.9

%

25.6

%

The Company believes that EBITDA provides useful information to the Company, investors and other interested parties about the Company’s operating performance, its capacity to incur and service debt, fund capital expenditures, and other corporate uses.

EBITDA, a non-GAAP financial measure, is defined by the Company as net income before income taxes, interest expense, and depreciation and amortization. The non-GAAP financial measure presented in the table above should not be viewed as an alternative or substitute for the Company’s reported GAAP results. EBITDA as defined herein may differ from similarly titled measures presented by other companies.

The following table sets forth a reconciliation of cash provided by operating activities to Free Cash Flow for the periods shown:

Six Months Ended

July 1,

July 3,

2012

2011

(in thousands)

Cash provided by operating activities

$

79,787

$

111,557

Less:

Capital expenditures and franchise acquisitions

50,345

46,787

Dividend payments

8,016

3,922

Free Cash Flow

$

21,426

$

60,848

Free Cash Flow, a non-GAAP financial measure, is defined by the Company as cash provided by operating activities less capital expenditures, franchise acquisitions and dividend payments.

The Company believes that Free Cash Flow provides useful information to the Company, investors and other interested parties about the amount of cash generated by the business that, after the acquisition of property and equipment, franchise acquisitions and payment of dividends, can be used for other strategic opportunities, including servicing debt, funding additional capital expenditures and making investments in the business. It should not be inferred that the entire Free Cash Flow amount is available for discretionary expenditures. The non-GAAP financial measure presented in the table above should not be viewed as an alternative or substitute for the Company’s reported GAAP results. Free Cash Flow, as defined herein, may differ from similarly titled measures presented by other companies.

Store Count Information:

Three Months Ended

Six Months Ended

July 1,

July 3,

July 1,

July 3,

2012

2011

2012

2011

Number of Company-owned stores:

Beginning of period

508

507

507

507

New (1)

5

1

5

2

Acquired from franchisees

-

-

1

-

Closed (1)

(3

)

(1

)

(3

)

(2

)

End of period

510

507

510

507

Number of franchised stores:

Beginning of period

50

47

49

47

New

-

1

2

2

Acquired by the Company

-

-

(1

)

-

Closed

-

-

-

(1

)

End of period

50

48

50

48

(1) For the three and six months ended July 1, 2012, new and closed stores include two relocated stores. New and closed stores for the six months ended July 3, 2011, include one relocated store.